Benchmarking Econometric and Machine Learning Methodologies in Nowcasting

Nowcasting can play a key role in giving policymakers timelier insight to data published with a significant time lag, such as final GDP figures. Currently, there are a plethora of methodologies and approaches for practitioners to choose from. However, there lacks a comprehensive comparison of these disparate approaches in terms of predictive performance and characteristics. This paper addresses that deficiency by examining the performance of 12 different methodologies in nowcasting US quarterly GDP growth, including all the methods most commonly employed in nowcasting, as well as some of the most popular traditional machine learning approaches. Performance was assessed on three different tumultuous periods in US economic history: the early 1980s recession, the 2008 financial crisis, and the COVID crisis. The two best performing methodologies in the analysis were long short-term memory artificial neural networks (LSTM) and Bayesian vector autoregression (BVAR). To facilitate further application and testing of each of the examined methodologies, an open-source repository containing boilerplate code that can be applied to different datasets is published alongside the paper, available at: github.com/dhopp1/nowcasting_benchmark.

Feasibility of nowcasting SDG indicators: a comprehensive survey

The 2030 Agenda and accompanying Sustainable Development Goals (SDGs) are vital in guiding national and global policy. However, many of the SDG indicators used to measure progress toward those goals suffer from long publication lags. Nowcasting has the potential to address this problem and generate more timely estimates of those indicators. This paper provides resources for achieving that potential by 1) carrying out a comprehensive nowcasting feasibility survey of all SDG indicators to assess their potential to be nowcast, and 2) performing a case study of indicator 9.4.1 to illustrate and shed light on the process of performing a nowcasting exercise. There exist 231 SDG indicators, but due to only examining Tier 1 indicators and the fact that many indicators have multiple sub-indicators, 362 indicators and sub-indicators were eventually surveyed. Of those 362, 150 were found highly likely to be suitable candidates for nowcasting, 87 were found to be likely, and 125 were found to be unsuitable.

Performance of long short-term memory artificial neural networks in nowcasting during the COVID-19 crisis

The COVID-19 pandemic has demonstrated the increasing need of policymakers for timely estimates of macroeconomic variables. A prior UNCTAD research paper examined the suitability of long short-term memory artificial neural networks (LSTM) for performing economic nowcasting of this nature. Here, the LSTM's performance during the COVID-19 pandemic is compared and contrasted with that of the dynamic factor model (DFM), a commonly used methodology in the field. Three separate variables, global merchandise export values and volumes and global services exports, were nowcast with actual data vintages and performance evaluated for the second, third, and fourth quarters of 2020 and the first and second quarters of 2021. In terms of both mean absolute error and root mean square error, the LSTM obtained better performance in two-thirds of variable/quarter combinations, as well as displayed more gradual forecast evolutions with more consistent narratives and smaller revisions. Additionally, a methodology to introduce interpretability to LSTMs is introduced and made available in the accompanying nowcast_lstm Python library, which is now also available in R, MATLAB, and Julia.

Economic Nowcasting with Long Short-Term Memory Artificial Neural Networks (LSTM)

Artificial neural networks (ANNs) have been the catalyst to numerous advances in a variety of fields and disciplines in recent years. Their impact on economics, however, has been comparatively muted. One type of ANN, the long short-term memory network (LSTM), is particularly wellsuited to deal with economic time-series. Here, the architecture's performance and characteristics are evaluated in comparison with the dynamic factor model (DFM), currently a popular choice in the field of economic nowcasting. LSTMs are found to produce superior results to DFMs in the nowcasting of three separate variables; global merchandise export values and volumes, and global services exports. Further advantages include their ability to handle large numbers of input features in a variety of time frequencies. A disadvantage is the inability to ascribe contributions of input features to model outputs, common to all ANNs. In order to facilitate continued applied research of the methodology by avoiding the need for any knowledge of deep-learning libraries, an accompanying Python library was developed using PyTorch, https://pypi.org/project/nowcast-lstm/.